Intrinsic value of Salesforce.com - CRM

Previous Close

$146.57

  Intrinsic Value

$41.26

stock screener

  Rating & Target

str. sell

-72%

Previous close

$146.57

 
Intrinsic value

$41.26

 
Up/down potential

-72%

 
Rating

str. sell

We calculate the intrinsic value of CRM stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Revenue (in 2018), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 104.8

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
   2019
   2020
   2021
   2022
   2023
   2024
   2025
   2026
   2027
   2028
   2029
   2030
   2031
   2032
   2033
   2034
   2035
   2036
   2037
   2038
   2039
   2040
   2041
   2042
   2043
   2044
   2045
   2046
   2047
   2048

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  24.90
  22.91
  21.12
  19.51
  18.06
  16.75
  15.58
  14.52
  13.57
  12.71
  11.94
  11.24
  10.62
  10.06
  9.55
  9.10
  8.69
  8.32
  7.99
  7.69
  7.42
  7.18
  6.96
  6.76
  6.59
  6.43
  6.29
  6.16
  6.04
  5.94
Revenue, $m
  13,090
  16,088
  19,486
  23,287
  27,492
  32,097
  37,096
  42,482
  48,245
  54,377
  60,869
  67,714
  74,905
  82,439
  90,315
  98,531
  107,090
  115,999
  125,264
  134,894
  144,903
  155,303
  166,112
  177,347
  189,029
  201,181
  213,827
  226,993
  240,706
  254,998
Variable operating expenses, $m
  11,810
  14,326
  17,176
  20,365
  23,892
  27,756
  31,950
  36,468
  41,303
  46,447
  51,065
  56,807
  62,840
  69,161
  75,767
  82,660
  89,841
  97,315
  105,087
  113,166
  121,563
  130,288
  139,355
  148,781
  158,582
  168,776
  179,385
  190,430
  201,935
  213,924
Fixed operating expenses, $m
  653
  667
  682
  697
  712
  728
  744
  761
  777
  794
  812
  830
  848
  867
  886
  905
  925
  945
  966
  987
  1,009
  1,031
  1,054
  1,077
  1,101
  1,125
  1,150
  1,175
  1,201
  1,228
Total operating expenses, $m
  12,463
  14,993
  17,858
  21,062
  24,604
  28,484
  32,694
  37,229
  42,080
  47,241
  51,877
  57,637
  63,688
  70,028
  76,653
  83,565
  90,766
  98,260
  106,053
  114,153
  122,572
  131,319
  140,409
  149,858
  159,683
  169,901
  180,535
  191,605
  203,136
  215,152
Operating income, $m
  627
  1,095
  1,628
  2,225
  2,887
  3,613
  4,402
  5,254
  6,165
  7,136
  8,993
  10,077
  11,217
  12,412
  13,662
  14,966
  16,324
  17,739
  19,211
  20,741
  22,331
  23,984
  25,702
  27,489
  29,347
  31,280
  33,292
  35,387
  37,571
  39,846
EBITDA, $m
  2,738
  3,501
  4,366
  5,336
  6,410
  7,587
  8,867
  10,246
  11,722
  13,293
  14,958
  16,713
  18,558
  20,491
  22,513
  24,622
  26,819
  29,107
  31,486
  33,960
  36,531
  39,204
  41,981
  44,869
  47,872
  50,996
  54,247
  57,633
  61,160
  64,836
Interest expense (income), $m
  55
  93
  249
  428
  632
  859
  1,111
  1,386
  1,685
  2,008
  2,353
  2,720
  3,108
  3,518
  3,948
  4,399
  4,870
  5,362
  5,874
  6,407
  6,962
  7,538
  8,137
  8,759
  9,406
  10,079
  10,778
  11,505
  12,262
  13,050
  13,870
Earnings before tax, $m
  534
  846
  1,200
  1,594
  2,028
  2,502
  3,016
  3,568
  4,157
  4,783
  6,273
  6,969
  7,700
  8,464
  9,263
  10,095
  10,963
  11,865
  12,803
  13,779
  14,793
  15,847
  16,943
  18,083
  19,268
  20,502
  21,787
  23,126
  24,521
  25,976
Tax expense, $m
  144
  229
  324
  430
  548
  676
  814
  963
  1,122
  1,291
  1,694
  1,882
  2,079
  2,285
  2,501
  2,726
  2,960
  3,204
  3,457
  3,720
  3,994
  4,279
  4,575
  4,882
  5,202
  5,536
  5,883
  6,244
  6,621
  7,013
Net income, $m
  390
  618
  876
  1,163
  1,480
  1,827
  2,202
  2,605
  3,035
  3,492
  4,579
  5,087
  5,621
  6,179
  6,762
  7,370
  8,003
  8,661
  9,346
  10,059
  10,799
  11,568
  12,368
  13,200
  14,066
  14,967
  15,905
  16,882
  17,900
  18,962

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  26,232
  32,241
  39,050
  46,668
  55,094
  64,323
  74,342
  85,135
  96,684
  108,972
  121,982
  135,699
  150,111
  165,209
  180,991
  197,456
  214,610
  232,463
  251,030
  270,329
  290,386
  311,228
  332,889
  355,405
  378,816
  403,169
  428,511
  454,895
  482,378
  511,018
Adjusted assets (=assets-cash), $m
  26,232
  32,241
  39,050
  46,668
  55,094
  64,323
  74,342
  85,135
  96,684
  108,972
  121,982
  135,699
  150,111
  165,209
  180,991
  197,456
  214,610
  232,463
  251,030
  270,329
  290,386
  311,228
  332,889
  355,405
  378,816
  403,169
  428,511
  454,895
  482,378
  511,018
Revenue / Adjusted assets
  0.499
  0.499
  0.499
  0.499
  0.499
  0.499
  0.499
  0.499
  0.499
  0.499
  0.499
  0.499
  0.499
  0.499
  0.499
  0.499
  0.499
  0.499
  0.499
  0.499
  0.499
  0.499
  0.499
  0.499
  0.499
  0.499
  0.499
  0.499
  0.499
  0.499
Average production assets, $m
  12,828
  15,767
  19,096
  22,821
  26,942
  31,455
  36,355
  41,633
  47,281
  53,290
  59,652
  66,360
  73,407
  80,791
  88,508
  96,560
  104,949
  113,679
  122,759
  132,196
  142,005
  152,197
  162,789
  173,800
  185,249
  197,158
  209,551
  222,453
  235,892
  249,898
Working capital, $m
  -2,513
  -3,089
  -3,741
  -4,471
  -5,278
  -6,163
  -7,123
  -8,157
  -9,263
  -10,440
  -11,687
  -13,001
  -14,382
  -15,828
  -17,340
  -18,918
  -20,561
  -22,272
  -24,051
  -25,900
  -27,821
  -29,818
  -31,893
  -34,051
  -36,294
  -38,627
  -41,055
  -43,583
  -46,216
  -48,960
Total debt, $m
  4,608
  7,931
  11,696
  15,909
  20,569
  25,672
  31,212
  37,181
  43,568
  50,363
  57,558
  65,143
  73,113
  81,462
  90,190
  99,295
  108,781
  118,654
  128,921
  139,594
  150,685
  162,211
  174,189
  186,640
  199,587
  213,054
  227,068
  241,659
  256,856
  272,695
Total liabilities, $m
  14,506
  17,829
  21,595
  25,807
  30,467
  35,571
  41,111
  47,079
  53,466
  60,262
  67,456
  75,042
  83,011
  91,361
  100,088
  109,193
  118,679
  128,552
  138,819
  149,492
  160,583
  172,109
  184,088
  196,539
  209,485
  222,952
  236,967
  251,557
  266,755
  282,593
Total equity, $m
  11,725
  14,412
  17,455
  20,860
  24,627
  28,752
  33,231
  38,055
  43,218
  48,711
  54,526
  60,657
  67,100
  73,849
  80,903
  88,263
  95,931
  103,911
  112,210
  120,837
  129,803
  139,119
  148,801
  158,866
  169,331
  180,217
  191,545
  203,338
  215,623
  228,425
Total liabilities and equity, $m
  26,231
  32,241
  39,050
  46,667
  55,094
  64,323
  74,342
  85,134
  96,684
  108,973
  121,982
  135,699
  150,111
  165,210
  180,991
  197,456
  214,610
  232,463
  251,029
  270,329
  290,386
  311,228
  332,889
  355,405
  378,816
  403,169
  428,512
  454,895
  482,378
  511,018
Debt-to-equity ratio
  0.390
  0.550
  0.670
  0.760
  0.840
  0.890
  0.940
  0.980
  1.010
  1.030
  1.060
  1.070
  1.090
  1.100
  1.110
  1.120
  1.130
  1.140
  1.150
  1.160
  1.160
  1.170
  1.170
  1.170
  1.180
  1.180
  1.190
  1.190
  1.190
  1.190
Adjusted equity ratio
  0.447
  0.447
  0.447
  0.447
  0.447
  0.447
  0.447
  0.447
  0.447
  0.447
  0.447
  0.447
  0.447
  0.447
  0.447
  0.447
  0.447
  0.447
  0.447
  0.447
  0.447
  0.447
  0.447
  0.447
  0.447
  0.447
  0.447
  0.447
  0.447
  0.447

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  390
  618
  876
  1,163
  1,480
  1,827
  2,202
  2,605
  3,035
  3,492
  4,579
  5,087
  5,621
  6,179
  6,762
  7,370
  8,003
  8,661
  9,346
  10,059
  10,799
  11,568
  12,368
  13,200
  14,066
  14,967
  15,905
  16,882
  17,900
  18,962
Depreciation, amort., depletion, $m
  2,111
  2,405
  2,738
  3,111
  3,523
  3,974
  4,464
  4,992
  5,557
  6,158
  5,965
  6,636
  7,341
  8,079
  8,851
  9,656
  10,495
  11,368
  12,276
  13,220
  14,200
  15,220
  16,279
  17,380
  18,525
  19,716
  20,955
  22,245
  23,589
  24,990
Funds from operations, $m
  2,501
  3,023
  3,614
  4,274
  5,003
  5,801
  6,666
  7,597
  8,592
  9,649
  10,544
  11,723
  12,961
  14,258
  15,613
  17,026
  18,498
  20,029
  21,622
  23,278
  24,999
  26,788
  28,647
  30,580
  32,591
  34,682
  36,860
  39,127
  41,490
  43,952
Change in working capital, $m
  -501
  -576
  -652
  -730
  -807
  -884
  -960
  -1,034
  -1,107
  -1,177
  -1,246
  -1,314
  -1,381
  -1,447
  -1,512
  -1,577
  -1,643
  -1,710
  -1,779
  -1,849
  -1,922
  -1,997
  -2,075
  -2,157
  -2,243
  -2,333
  -2,428
  -2,528
  -2,633
  -2,744
Cash from operations, $m
  3,002
  3,599
  4,266
  5,004
  5,811
  6,685
  7,626
  8,631
  9,698
  10,827
  11,791
  13,038
  14,342
  15,705
  17,125
  18,603
  20,141
  21,740
  23,401
  25,127
  26,921
  28,785
  30,722
  32,737
  34,834
  37,016
  39,288
  41,655
  44,123
  46,696
Maintenance CAPEX, $m
  -1,027
  -1,283
  -1,577
  -1,910
  -2,282
  -2,694
  -3,146
  -3,635
  -4,163
  -4,728
  -5,329
  -5,965
  -6,636
  -7,341
  -8,079
  -8,851
  -9,656
  -10,495
  -11,368
  -12,276
  -13,220
  -14,200
  -15,220
  -16,279
  -17,380
  -18,525
  -19,716
  -20,955
  -22,245
  -23,589
New CAPEX, $m
  -2,558
  -2,939
  -3,330
  -3,725
  -4,121
  -4,513
  -4,899
  -5,278
  -5,648
  -6,009
  -6,362
  -6,708
  -7,048
  -7,384
  -7,718
  -8,052
  -8,389
  -8,730
  -9,079
  -9,438
  -9,808
  -10,192
  -10,592
  -11,011
  -11,449
  -11,909
  -12,393
  -12,902
  -13,439
  -14,006
Cash from investing activities, $m
  -3,585
  -4,222
  -4,907
  -5,635
  -6,403
  -7,207
  -8,045
  -8,913
  -9,811
  -10,737
  -11,691
  -12,673
  -13,684
  -14,725
  -15,797
  -16,903
  -18,045
  -19,225
  -20,447
  -21,714
  -23,028
  -24,392
  -25,812
  -27,290
  -28,829
  -30,434
  -32,109
  -33,857
  -35,684
  -37,595
Free cash flow, $m
  -583
  -623
  -640
  -631
  -592
  -522
  -419
  -283
  -113
  89
  100
  365
  659
  980
  1,328
  1,701
  2,096
  2,514
  2,954
  3,413
  3,893
  4,392
  4,910
  5,448
  6,005
  6,582
  7,179
  7,797
  8,438
  9,101
Issuance/(repayment) of debt, $m
  2,884
  3,323
  3,765
  4,213
  4,660
  5,103
  5,540
  5,969
  6,387
  6,795
  7,194
  7,585
  7,970
  8,350
  8,727
  9,105
  9,486
  9,873
  10,267
  10,673
  11,091
  11,526
  11,978
  12,451
  12,947
  13,467
  14,014
  14,590
  15,198
  15,838
Issuance/(repurchase) of shares, $m
  1,948
  2,068
  2,168
  2,242
  2,286
  2,298
  2,277
  2,220
  2,128
  2,001
  1,236
  1,044
  821
  570
  293
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  4,832
  5,391
  5,933
  6,455
  6,946
  7,401
  7,817
  8,189
  8,515
  8,796
  8,430
  8,629
  8,791
  8,920
  9,020
  9,105
  9,486
  9,873
  10,267
  10,673
  11,091
  11,526
  11,978
  12,451
  12,947
  13,467
  14,014
  14,590
  15,198
  15,838
Total cash flow (excl. dividends), $m
  4,249
  4,769
  5,293
  5,823
  6,354
  6,880
  7,398
  7,906
  8,402
  8,886
  8,530
  8,994
  9,450
  9,900
  10,348
  10,806
  11,583
  12,387
  13,221
  14,086
  14,984
  15,918
  16,889
  17,899
  18,952
  20,049
  21,193
  22,388
  23,636
  24,939
Retained Cash Flow (-), $m
  -2,337
  -2,686
  -3,044
  -3,405
  -3,767
  -4,125
  -4,478
  -4,824
  -5,163
  -5,493
  -5,815
  -6,131
  -6,442
  -6,749
  -7,054
  -7,360
  -7,668
  -7,980
  -8,299
  -8,627
  -8,965
  -9,316
  -9,682
  -10,065
  -10,465
  -10,886
  -11,328
  -11,794
  -12,285
  -12,802
Prev. year cash balance distribution, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
  996
  1,244
  1,528
  1,851
  2,212
  2,612
  3,049
  3,524
  4,036
  4,583
  5,166
  5,783
  6,433
  7,116
  7,832
  8,580
  9,360
  10,174
  11,020
  11,900
  12,815
  13,766
  14,754
  15,781
  16,848
  17,958
  19,112
  20,314
  21,564
  22,867
Cash available for distribution, $m
  1,912
  2,083
  2,250
  2,418
  2,587
  2,755
  2,920
  3,081
  3,239
  3,393
  2,715
  2,863
  3,008
  3,151
  3,293
  3,446
  3,915
  4,407
  4,922
  5,459
  6,019
  6,601
  7,206
  7,835
  8,487
  9,163
  9,865
  10,594
  11,351
  12,137
Discount rate, %
  4.30
  4.52
  4.74
  4.98
  5.23
  5.49
  5.76
  6.05
  6.35
  6.67
  7.00
  7.35
  7.72
  8.11
  8.51
  8.94
  9.39
  9.86
  10.35
  10.87
  11.41
  11.98
  12.58
  13.21
  13.87
  14.56
  15.29
  16.05
  16.86
  17.70
PV of cash for distribution, $m
  1,833
  1,907
  1,958
  1,991
  2,005
  1,999
  1,972
  1,926
  1,861
  1,779
  1,289
  1,222
  1,144
  1,058
  967
  876
  852
  812
  758
  694
  623
  548
  472
  399
  330
  267
  212
  164
  124
  91
Current shareholders' claim on cash, %
  98.0
  96.3
  94.8
  93.6
  92.6
  91.8
  91.0
  90.4
  89.9
  89.5
  89.3
  89.1
  89.0
  88.9
  88.9
  88.9
  88.9
  88.9
  88.9
  88.9
  88.9
  88.9
  88.9
  88.9
  88.9
  88.9
  88.9
  88.9
  88.9
  88.9

Salesforce.com, Inc. is a provider of enterprise software, delivered through the cloud, with a focus on customer relationship management (CRM). The Company focuses on cloud, mobile, social, Internet of Things (IoT) and artificial intelligence technologies. The Company's service offerings are configured and integrated with other platforms and enterprise applications. The Company delivers its service offerings via Internet browsers and on mobile devices. Its Customer Success Platform is a portfolio of service offerings providing sales force automation, customer service and support, marketing automation, digital commerce, community management, analytics, application development, IoT integration, collaborative productivity tools and its professional cloud services. Its cloud service offerings include Sales Cloud, Service Cloud, Marketing Cloud, Commerce Cloud, Community Cloud, Analytics Cloud, Salesforce Quip and Salesforce Platform.

FINANCIAL RATIOS  of  Salesforce.com (CRM)

Valuation Ratios
P/E Ratio 576.1
Price to Sales 12.4
Price to Book 13.8
Price to Tangible Book
Price to Cash Flow 48
Price to Free Cash Flow 61.1
Growth Rates
Sales Growth Rate 25.9%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -34.6%
Cap. Spend. - 3 Yr. Gr. Rate 9.2%
Financial Strength
Quick Ratio 110
Current Ratio 0
LT Debt to Equity 35.9%
Total Debt to Equity 36.1%
Interest Coverage 1
Management Effectiveness
Return On Assets 3.8%
Ret/ On Assets - 3 Yr. Avg. 0.3%
Return On Total Capital 2.1%
Ret/ On T. Cap. - 3 Yr. Avg. -1%
Return On Equity 2.9%
Return On Equity - 3 Yr. Avg. -1.9%
Asset Turnover 0.6
Profitability Ratios
Gross Margin 73.4%
Gross Margin - 3 Yr. Avg. 74.9%
EBITDA Margin 8.5%
EBITDA Margin - 3 Yr. Avg. 7.6%
Operating Margin 0.7%
Oper. Margin - 3 Yr. Avg. -0.1%
Pre-Tax Margin 0.3%
Pre-Tax Margin - 3 Yr. Avg. -0.9%
Net Profit Margin 2.1%
Net Profit Margin - 3 Yr. Avg. -1.2%
Effective Tax Rate -620%
Eff/ Tax Rate - 3 Yr. Avg. -156.7%
Payout Ratio 0%

CRM stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the CRM stock intrinsic value calculation we used $10480 million for the last fiscal year's total revenue generated by Salesforce.com. The default revenue input number comes from 2018 income statement of Salesforce.com. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our CRM stock valuation model: a) initial revenue growth rate of 24.9% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 4.3%, whose default value for CRM is calculated based on our internal credit rating of Salesforce.com, is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of Salesforce.com.
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of CRM stock the variable cost ratio is equal to 91.8%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $639 million in the base year in the intrinsic value calculation for CRM stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 5.4% for Salesforce.com.

Corporate tax rate of 27% is the nominal tax rate for Salesforce.com. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the CRM stock is equal to 9.5%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for CRM are equal to 98%.

Life of production assets of 10 years is the average useful life of capital assets used in Salesforce.com operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for CRM is equal to -19.2%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $9388 million for Salesforce.com - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 715 million for Salesforce.com is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of Salesforce.com at the current share price and the inputted number of shares is $104.8 billion.

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